Introduction
The Goods and Services Tax (GST), introduced in 2017, is one of India's most significant tax reforms aimed at creating a unified indirect tax structure across the country. At its heart lies the GST Council, a constitutional body formed to make recommendations on important aspects of GST. But how binding are these recommendations? The Supreme Court’s judgment in the Mohit Minerals case (2022) answers this fundamental question.
The case marked a turning point in Indian federalism, redefining the relationship between the Union and State governments in tax policy decisions.
Background of the Case
What led to the Mohit Minerals Case?
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The case arose from the imposition of IGST on ocean freight under reverse charge mechanism (RCM) for CIF (Cost, Insurance and Freight) contracts.
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Mohit Minerals challenged this levy, stating that it led to double taxation — once on the total value of imported goods (including freight), and again separately on freight.
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They contended that it violated the basic principles of GST and Indian constitutional provisions.
Key Legal Issues Involved
1. Is GST Council binding on States?
One of the central questions was whether the GST Council's decisions were mandatory or merely recommendatory in nature.
2. Does imposing IGST on ocean freight under RCM violate the GST framework?
The challenge centered on double taxation and extraterritorial application of Indian tax laws.
Supreme Court’s Observations
In May 2022, the Supreme Court of India made these landmark observations:
1. GST Council is not binding
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The Court held that the recommendations of the GST Council are not enforceable laws.
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Article 279A of the Constitution creates a federal body for “cooperative federalism” but does not give supremacy to the Union over States.
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States are not bound to implement GST Council’s recommendations.
2. States have fiscal autonomy
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Both Parliament and State Legislatures have equal power to legislate on GST matters (as per Article 246A).
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The Court stressed the importance of competitive federalism and dialogue between Centre and States.
3. IGST on ocean freight is unconstitutional
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The tax imposed on ocean freight in CIF contracts was struck down.
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The Court held that importers already pay tax on the full CIF value — taxing freight again is violative of GST principles.
Implications of the Judgment
Strengthening Federalism
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Reinforced the idea of cooperative federalism — giving States more say in tax matters.
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Prevents over-centralization of tax decisions.
Legal Precedent
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Clarified the constitutional status of the GST Council — it's a recommendatory body, not a legislature.
Policy Impact
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Encouraged re-evaluation of other GST decisions.
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Opened the path for States to take independent decisions on GST rates and exemptions (within constitutional bounds).
Conclusion
The Mohit Minerals ruling is a milestone in India's evolving federal structure. While GST was designed to unify India’s tax regime, this ruling highlighted that States are not subordinates in this arrangement. The judgment affirms that the GST Council is a platform for dialogue and coordination, not command. This restores balance between the Union and States and strengthens India’s constitutional commitment to federalism.
As the nation continues to fine-tune its GST regime, the principles laid out in this case will serve as guiding lights for cooperative policymaking and respect for State autonomy.